Public Bill Committee

[Mr James Gray in the Chair]

Clause 26

Amendment proposed (this day): 111, in clause26, page13, line8,at end add—
‘(9) Under no circumstances shall the Secretary of State allow any targets to be set which would increase the number or value of sanctions issued under this section.’.—(Stephen Timms.)

Question again proposed, That the amendment be made.

James Gray: I remind the Committee that with this we are discussing amendment 112, in clause27, page14, line4,at end add—
‘(10) Under no circumstances shall the Secretary of State allow any targets to be set which would increase the number or value of sanctions issued under this section.’.

Kate Green: I hope to pick up from where we left off, but I am sure that hon. Members will remind me if I fail to address the issues that we were discussing before lunch. We were looking at the potential for target setting in the number of sanctions imposed by Jobcentre Plus. We accept that we do not have evidence that Ministers have set any targets for the number of sanctions to be imposed, but we have demonstrated that some Jobcentre Plus offices have interpreted that that is what went with the grain of Ministers’ intentions. I think that there is broad agreement that some of the behaviours in Jobcentre Plus offices in recent months are, as the hon. Member for Battersea has pointed out, issues to do with performance management and the way in which discretion and decision making are applied.
The tone that has been set has given rise to this situation. As I said this morning, its context is the benchmarking approach undertaken by Jobcentre Plus since at least the end of last year, according to the written answer I received from the agency’s chief executive. That has raised the concern in our minds that some Jobcentre Plus staff feel that, if they do not come close to or within those benchmarks, that will bring their approach to sanctioning into question, and that may well have dictated some of the behaviours that we have seen.
In practice, we can see the way in which this is playing out in the kinds of behaviours being displayed by Jobcentre Plus advisers. Some of them were referred to this morning by my hon. Friend the Member for Makerfield. I have been given information about the interesting case of a gentleman called George Jones—that is not his correct name, but I have been asked to protect his identity. He is an ex-offender who is claiming jobseeker’s allowance and undertaking activities set out in his jobseeker’s agreement, one of which was to attend a provision by an organisation called Calder UK once a week. He also attended the Foundation Training Company, which helps offenders find work. Foundation located a training course for him, which meant that he attended the Ability media centre for 16 hours a week while continuing to look for work. Because he was attending Ability, he was not able to attend Calder on a Thursday, but the Calder job coach was happy with that and accepted the reasons for George’s absence. None the less, the Calder agency continued to send letters to George. At the same time that all that was going on—George was being told by one bit of the system that it was okay for him to attend the course and not turn up on a Thursday, but he was receiving letters from another part asking him where on earth he was on Thursdays—he continued to sign on at the Department for Work and Pensions and the Jobcentre Plus staff who dealt with him raised no objections.
In mid-March, George attended a 13-week review at Jobcentre Plus of his job-seeking activities, and it is here that we get an indication of how a mindset might be seeping into some Jobcentre Plus officials. The jobcentre official accused George of failing to seek work and of being unavailable to work. It is reported that the official became aggressive and refused to listen to George’s account of what was happening or to examine the facts. Eventually, the official walked out of the interview, refusing to do anything to verify the information provided. In fact, he walked out and said to George, “I’m going to lunch.”
The next thing that happened in the middle of March was that George discovered that his benefit had been cut off. He received a letter on 30 March advising him that it had been cut off from the 12th until the 26th. It did not say anything specifically about that being a sanction. For the rest of the period, George attempted to explain the situation to the jobcentre, both in phone calls and through visits. He spoke to three different managers, without any assistance or guidance, and other agencies, including the police, helped negotiate with the DWP on George’s behalf as well. Finally, the Zacchaeus 2000 Trust, with which hon. Members will be familiar, was able to assist George with a small cash payment as he had had no money for three weeks. When we look at the behaviour of the official who was conducting the 13-week review, we can see that the climate means that at least some officials feel that the pressure is not to offer any tolerance or space. They simply take the facts at face value and apply sanctions. That is clearly a cause for concern.
I think we all feel—I picked this up from listening to the Minister this morning—that there needs to be a much more subtle and potentially discretionary judgmental approach taken to the application of sanctions. It is difficult to see how that can be the right approach in the context where any targets are set. If Ministers are confident that they never intended to set targets, they should have no difficulty with the amendment because it would simply say that that is something they would not seek to do.
Finally, I am concerned that any climate the ratcheting up of the likelihood of sanctions has created, whether by intention, misinterpretation or otherwise, will bear most harshly on the disadvantaged. All the evidence shows that they are the people—those with the most chaotic lifestyles, the disabled, those with learning difficulties, those with language difficulties, those from ethnic minority backgrounds and so on—who are most likely already to face a sanction. In a target regime, whether intended or accidental, the people who are likely to continue to be most vulnerable to facing a sanction will be the easy pickings. Therefore, we would like it to be overtly stated in the legislation that no such climate of targets to meet as many sanctions as are required will be implemented.

Chris Grayling: I have listened to the debate with a degree of surprise. I do not blame the hon. Member for Stretford and Urmston (Kate Green) because she is a new Member of Parliament, but I cannot believe the gall of the Opposition in what they say about the number of sanctions.
Let us start by considering the practical facts. The main reason for the increase in the number of sanctions over the past 12 months is a change in the way that failure to attend a mandatory interview is treated. Previously, such failures resulted in disentitlement if the claimant did not make contact within five days. In such cases, many claimants would then make a fresh claim to benefit, losing on average a few days a month. The approach did not provide a strong enough incentive to attend those important announcements.
Therefore, the previous Government thought long and hard and took a decision to change the system in the Welfare Reform Act 2009. If I am not mistaken, the Labour party was in power in 2009 and the 2009 Act was its policy. That legislation introduced a new sanction for failure to attend mandatory appointments, which was introduced from April 2010 by the previous Government. The key reason why there has been a big jump in the number of sanctions in the past year is because of a policy decision taken by the previous Government. We agree with that decision, but it was a direct result of decisions taken not by the right hon. Member for East Ham because he was not in that job at the time, but by his parliamentary colleagues.
To hear the faux accusation that somehow this is an evil decision taken by the current Government, is simply a travesty of the truth. This was a conscious policy decision taken by the previous Government and it has led to a significant increase in the number of sanctions. Under the new approach, if a claimant can demonstrate good cause, the benefit continues. However, where they cannot, a one-week sanction is imposed, which is increased to a two-week sanction for the second and subsequent failures. Where the customer does not return within five days, their case is closed. That is the reason for the increase in sanctions from 2010.
There is another point, in relation to which I should make an apology. It is certainly the case that we underestimated the extent to which 13 years of centralised, top-down target setting meant that people were so used to living in a target culture, they would replicate it, even without instruction from the top. I freely admit that, a few weeks ago, I discovered that a pretty loose set of policy indications that aimed to create a system that was firm but fair in treating claimants—a two-way contract, as we mentioned this morning—was, in a small number of cases, being turned into target setting, not across the country, but on a local level. The moment we discovered that, we took steps to stop it. None the less, a consequence—Opposition Members should be ashamed—is that for 13 years Jobcentre Plus and other public sector organisations were wrapped up in such a culture of target setting that it is now a huge change challenge to turn such organisations around, saying to them, “Actually, we want you to use your discretion.” It is a matter of great regret that we failed to understand the degree to which the previous Administration damaged those organisations. We are now seeking to put right that damage.

Stephen Timms: In due course, the Minister will learn some rather hard lessons about how large organisations such as Jobcentre Plus respond to the kind of things he will say to them. He told us—I am grateful—that he learned some weeks ago about the problem with targets being set. Which jobcentres applied those targets? As I asked this morning, did he inform the Secretary of State?

Chris Grayling: The answer is that I will not give the right hon. Gentleman a list of jobcentres—the targets were applied sporadically, and it would not be fair on those jobcentres to give a list, but a clear instruction was given. Yes, the Secretary of State was informed, but he was asked that question at pretty much the same time as I discovered what had been going on.
Does the right hon. Gentleman now regret creating in government such a target-driven culture, which could lead an organisation to believe that the only response was a target? Does he understand the degree of damage that was done by the way his Administration approached the management of big organisations in that time? There was no sense of devolution of power and responsibility in the front line, and no sense of judgment—it was target, target, target and close control, close control, close control, to the extent that I now find Jobcentre Plus staff pleasantly surprised to discover that they have discretion to judge what is right and wrong.

Kate Green: As the Minister noted, I am a new Member of Parliament, so I have no personal responsibility for the effectiveness or otherwise of the target-setting regime that existed before last year. However, I point out that the points target-based approach, which rewarded Jobcentre Plus advisers for getting people into employment, saw for example a surge in lone-parenting employment, from 44% to 57%. As someone who was in no way implicated in setting targets under the previous Government, I thought it was an effective driver of good Jobcentre Plus behaviour.

Chris Grayling: I rather disagree with the hon. Lady. The imposition of centralised targets throughout government—not simply in Jobcentre Plus—created perverse decision making in the organisations, removed professional discretion and ended up with public services running less effectively than they should otherwise have done.
I would be happy to accept the amendments if we could insert “Labour” before “Secretary of State”. That party brought the culture of targets to government and that party did to our public services the damage that will take us far too long to sort out. We are dealing with a difficult legacy, which should not have taken its current form. We are making changes as quickly as we can. I could not possibly accept a set of amendments designed, fundamentally, to rectify a situation created by the party proposing those amendments.

Stephen Timms: That is a disappointing response from the Minister and, I am afraid, simply draws attention to his present lack of understanding—sadly, although I know he has only been in the job for a year—of how large organisations operate and how they respond to the kind of directives that he will undoubtedly issue, in the same way that his predecessors did.
The Minister has I think made clear his objection to having such targets—that is implied in what he said, and I take it that he does so object. He leaves us with a bit of a mystery, because the statement from his Department a few days after that article in The Guardian said:
“A few weeks ago ministers discovered that their message to be clearer about conditionality had been misinterpreted by a small number of Jobcentre Plus offices”—
I am not quite sure why the Minister cannot tell us which offices—and the Minister said that he told the Secretary of State at that time. Why the Secretary of State then went on television to describe the allegations as “claptrap” remains somewhat unclear. It would have been helpful to have had some illumination of what exactly went on. Ministers ought to communicate such information to each other a bit more readily than seems to have happened on that occasion.
The episode illuminates how readily intentions that sound perfectly well and honourable in Committee could go badly wrong. From what the various whistleblowers have said, there was clearly a culture change—one of them said last summer. That is when it happened. There was not simply a change of legislation—although there was a change of legislation, as the Minister has rightly said—but a culture change that led to the targets being set by some jobcentres.
The truth is that Ministers unfortunately have to plan for the eventuality that things go wrong, such as people with mental health problems being sanctioned inappropriately. So Ministers should not simply tell us that, because everything has changed as a result of the general election, none of those things will go wrong in future. They will go wrong again. The Minister would do better to recognise that reality rather than pretending that everything has now changed, because such things happen.
The planning assumption needs to be that such things will go wrong. The Minister will not do well to operate on the hoping-for-the-best basis that if he says, “All will be well,” it will be. He needs to plan on the basis that things will go wrong. I am afraid that some very vulnerable people will lose out severely as a result.

Charlie Elphicke: The Minister seems to be saying that things did not go wrong. It seems that the previous Government implemented a policy and that jobcentre workers followed that policy. That might be erroneous, but, nevertheless, it seems that the policy came from the previous Government. Does the right hon. Member for East Ham regret that? If so, will he condemn the policy?

Stephen Timms: No, it is perfectly true that the legislation changed. The problem subsequently arose, however, in some jobcentres that, in my view, responded to what they thought they were being told by Ministers. The new culture that was introduced last summer led to some jobcentres, some regions, or whoever it was—we have not been able to establish exactly how the problem occurred—setting targets for sanctions. That was the problem, and it gave rise to the difficulties that have been exposed. Ministers need to recognise that such problems happen in large organisations such as Jobcentre Plus, and they need to plan on that basis. Ministers need to address things to avoid those problems occurring in the future, as they undoubtedly will unless steps are taken to avoid them.

Charlie Elphicke: Again, the right hon. Gentleman will forgive me, but the Minister has clearly said that he thinks that the target culture was part of the problem. Giving people at the front line more discretion will enable more humanity, understanding and compassion to get such decisions right.

Stephen Timms: But large organisations such as Jobcentre Plus will always have targets. That is the nature of large organisations. The hon. Gentleman heard me this morning reading out how people in jobcentres have responded to the targets they have been set. I am simply making the point that Jobcentre Plus needs to be managed in light of how things work, not by pretending, “Oh, everything has miraculously changed. Those problems won’t arise because Ministers say they won’t arise.” I am afraid they will.

Chris Grayling: Does the shadow Minister not accept—he may be struggling to understand this concept—that Jobcentre Plus staff were surprised and pleased that they now have discretion and are not locked in by centralised targets? That is what I have found. Does he not understand the degree to which imposing diktat from the Secretary of State’s office shapes the behaviour of an organisation, which leads to the consequences we have seen?

Stephen Timms: But the Minister’s difficulty is that those targets have been in place since the election. That is how Jobcentre Plus has responded to the new Ministers. He needs to recognise that and not pretend that problems will not happen in future, because they will. Whoever runs Jobcentre Plus, and it is an organisation for which I have high regard, there will be targets. There is no point in pretending that targets will not be there any more, because they certainly will.

George Hollingbery: Looking carefully at amendment 111, I am puzzled. It would apparently prevent the Secretary of State from allowing targets to be set, at the same time that, according to the shadow Minister, it is in the very nature of such an organisation as Jobcentre Plus that it sets targets. The amendment specifically refers to targets that would increase sanctions under the clause, but there must be a wide range of targets that we would not think were desirable, so why are they not specified? Is it not right that an organisation such as Jobcentre Plus might have a target that resulted in improvements—for example, to be more careful about how it interprets existing legislation to ensure that people who should be sanctioned are sanctioned? Ultimately, the amendment makes little or no sense. It is internally contradictory.

Stephen Timms: Certainly, Jobcentre Plus will have targets, and it is absolutely right that it should have. The Minister gives the impression that he does not want any targets. I cannot imagine that he believes that. The managers in Jobcentre Plus will rightly have put targets in place to manage the organisation successfully, as it is very large.
The point of our amendment is simply to assert that targets should not refer to the number of sanctions. It is a reflection of what has gone on in some jobcentres over the past few months. All of us in Committee, including the Minister, would agree that such sanctions should not have been set; the amendment is a device to ensure that they will not be so in future. However, I do not intend to push it to a vote.
I say to the Minister that, as we move on to the changes set out clauses 26 and 27, he will need to have his eyes open about what the provisions will open up in practice. We will hear more disturbing stories about how some policies are implemented. The Minister needs to plan on that basis and to do what he can to avoid repeats of this particularly disreputable episode. I fear that similar ones might happen in the future. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Stephen Timms: I beg to move amendment 114, in clause26,page13,line8,at end insert—
‘(9) Where only one member of a couple attracts a sanction under this section, regulations must make provision for the second member of the couple to continue to receive an appropriate share, except in such circumstances as may be prescribed.’.

James Gray: With this it will be convenient to discuss amendment 115, in clause27,page14,line4,at end insert—
‘(10) Where only one member of a couple attracts a sanction under this section, regulations must make provision for the second member of the couple to continue to receive an appropriate share, except in such circumstances as may be prescribed.’.

Stephen Timms: With universal credit being applied to households rather than individuals, there is a worry that sanctions will have a detrimental effect on families as a whole, in that they might end up facing severe financial penalties for the actions of one individual. The Royal National Institute for Deaf People has made that point. It has stated:
“We do not believe that this is a fair way of enforcing sanctions, and believe that only the individual transgressor should face a penalty under such circumstances.”
The difficulties are exacerbated by the fact that with universal credit all the benefits are in one place and that everything is assessed at household rather than individual level. I hope that the Minister will give us some reassurance about how sanctions will be applied in the universal credit where a couple rather than a single person is affected.
At the moment, jobseeker’s allowance is paid at a reduced rate during sanction periods where only one member of a joint-claim couple is sanctioned, and in those cases the jobseeker’s allowance is paid to the person who has not been sanctioned. The guidance sets out details of how that is calculated. I am keen to hear from the Minister whether the same arrangement will be put in place in the universal credit or whether there is a real danger of both members of a couple being entirely without support because one member incurs a sanction.

Chris Grayling: The amendments seek to ensure that, as the shadow Minister said, where one member of a couple is sanctioned the couple’s universal credit award is not reduced to below the appropriate amount for the compliant member of the couple, except in prescribed circumstances. That is an important issue and the right hon. Gentleman is sensible to raise it.
Let me reassure the Committee: if one member of a couple is sanctioned, the compliant member will be left with an appropriate amount of universal credit. Sanctionable amounts will be set by reference to the standard allowance that will be included in a claimant’s universal credit maximum amount. Since the standard allowance for couple claimants will be more than, but not double, that of a single claimant, we may set different sanctionable rates for failures by one member of a couple compared with a failure by an individual. We are carefully considering what the rate should be, but I give the Committee an absolute assurance that where only one member of a couple is sanctioned, the household award will not be reduced by more than the single person standard allowance. That means that where the household receives its maximum universal credit amount, the sanctioned award will still include an identifiable amount to support the basic living costs of the compliant member.
Furthermore, any additional amounts included in the award for housing or children would not be affected by a sanction. Where a household’s award is less than its maximum amount, due to its level of income or savings, a sanction could reduce the universal credit to less than the additional amounts for children and housing, including the maximum amount, and the Committee will remember that I explained this morning how and why that might happen. In such cases, claimants will have access to income or savings to support those costs. I hope that that gives the right hon. Gentleman the reassurance he sought and that he will withdraw the amendment.

Stephen Timms: I am grateful for that reassurance and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Stephen Timms: I beg to move amendment 81, in clause26,page13,line8,at end insert—
‘(10) Regulations must provide for the lifting or termination of sanctions if the claimant enters employment.’.

James Gray: With this it will be convenient to discuss amendment 84, in clause27,page14,line4,at end insert—
‘(11) Regulations must provide for the lifting or termination of sanctions if the claimant enters employment.’.

Stephen Timms: Most people would assume that when somebody gets a job, any sanction that had been imposed on them prior to that and by which they were affected immediately before taking up their job would end. The amendments are intended to ensure that that is the case. As the Bill stands, however, that is not the case. As I understand it, the current intention is that if somebody is sanctioned and then gets a job, but subsequently loses that job, the sanction on them immediately before going into work would apply to them again. It strikes me that it would be better, not least to increase the attractiveness of being in a job, to let the sanction lapse once somebody goes into employment. I suppose that there might be a problem with people getting a job for a very short time just to escape the sanction and then leaving that job in order to go back on benefits, so there might have to be some prescribed period, but to say that the sanction that they go into work with effectively stays with them, in abeyance, throughout their time in work and then comes back into life at the moment when they lose their job seems to be a puzzling arrangement and one that I would not have thought the Minister would want in the Bill. I hope that, on reflection, he will consider that the amendment would improve the situation.
Will the Minister explain whether the sanction might apply—presumably it could—while people are in work? Depending on what the sanction was, could it continue after the person has gone into work? There is the separate question about the sanction coming back to life if they subsequently lose their job, but it strikes me as entirely possible that a sanction might apply and be effective while the person is working, particularly given that that person is likely to be receiving universal credit while in work. That has given rise to some significant concern among the organisations that have been looking at the measures, and I would be grateful if the Minister will consider whether our amendments would improve the Bill.

Chris Grayling: I start by reassuring the right hon. Gentleman that the flexibility he seeks is already included in the regulation-making powers for clauses 26 and 27, which both provide for powers that would bring sanctions to an end in certain circumstances. For example, clause 26 provides for the higher-level sanctions: subsection (4)(a) allows us to make regulations to reduce the sanctionable amount to zero and subsection (8)(c) allows us to make regulations to terminate or suspend a sanction. These powers are mirrored in clause 27. We are carefully considering the circumstances where it may be necessary to use those powers. Our expectation is that we will lift sanctions only in a very narrow range of circumstances, for example, where a claimant moves into the no work-related requirements group due to severe illness.
The right hon. Gentleman is right to say that there is an element of common sense to apply. His amendment states:
“Regulations must provide for the lifting or termination of sanctions”.
My worry is that there will be circumstances in which we do not want to do that. There is a world of difference between someone who receives an extended sanction, then gets into employment, stays there for a number of years and subsequently loses their job long after they have clearly demonstrated that they have a substantial and ongoing employment record and someone who simply takes a job for a few days and then says, “Please lift my sanction,” which might otherwise have lasted for six months. It is not as simple as saying that regulations must provide for the lifting or termination of sanctions because there will be circumstances where entering employment does not, should not and would not make that logical.

Stephen Timms: Can the Minister reassure us that somebody who has been in work for one year would not expect to have a sanction they were suffering before they went into work come back again after a year of employment?

Chris Grayling: I am reluctant to give the right hon. Gentleman a number now, because our general approach should be and will be that if someone receives a sanction it is something that they should experience; it should not simply disappear as a result of a single change in circumstances. We will want to look clearly at where there is a change in health, for example: if someone comes back and needs employment and support allowance because they are seriously ill or have acquired a severe disability, that is a different set of circumstances. We will certainly look at whether there is an appropriate period after which somebody can be deemed to have been in work sufficiently long that we did not need to reapply a sanction. It is not something that I would seek to do lightly, nor something that I would seek to prescribe in too much detail. Again, I look to the discretion of front-line staff to decide circumstances where it may be appropriate to do so.
The right hon. Gentleman should assume that the default approach set out in the Bill is that a sanction will be a sanction will be a sanction, regardless of the circumstances, except in unusual cases where there has clearly been such a significant and material change of circumstances that it makes sense for the sanction not to be applied in the way that was originally envisaged. From a practical point of view, for the purposes of the Bill, the powers exist to do what he suggests we should do. He makes a sensible point about someone who has been in work for a lengthy period and I can give him an assurance that that is something that we will consider carefully when putting together the regulations. What I cannot give him is an undertaking that I will put a time limit on it because I think that would be wrong.
Generally speaking, I think that the same principle applies throughout our system—people do not get off an offence because it does not come up for a number of years—but of course there will be a common-sense point at which we say that it is not logical to reapply a sanction long after the event. We will look at that question when forming the regulations. Generally speaking, it will require a material change of circumstances such as a change in someone’s health before we would make a change, but I do not rule out what the right hon. Gentleman has described. I hope that he will accept that the elements I have just set out allow us to do what he wishes anyway, but I am not prepared to accept a “must” element, because it would be very easy for someone to enter short-term employment, lose the sanction and then move on from that. That would not be right.

Stephen Timms: I am encouraged by what the Minister says. I think he accepts the common-sense point, as he described it, that once someone has been in a job for a reasonable period it does not make much sense, should they lose that job, for a long-forgotten sanction suddenly to burst into life again. I am grateful for the assurance on the existing powers. I encourage him to develop the regulations to that effect, and I look forward to seeing them in due course. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Jane Ellison: With the Committee’s indulgence, I will take the opportunity to put down a marker against future regulations and the administration of this part of the sanctions regime policy. As I do about all areas of public policy, I feel strongly—indeed, I raised the issue during Health questions recently—that we should look beyond the postal system and make increased use of mobile communications when corresponding with individuals about important matters. It is important that a sanctions regime is delivered through modern methods of communication, especially when the penalties and the impact on someone’s life can be severe if they do not receive a letter or know what is going on around them.
Increasingly, and across all branches of Government, we are not really keeping up with modern social trends and habits. We have all met constituents who said that they did not receive critical letters that made a big difference to their lives. Royal Mail admits that on its figures, around 280,000 letters a week are lost—that is more than 14 million letters a year. In many cases, those who come to my surgery and say that they did not receive letters are telling the truth. Some say that they do not open letters, but that is another problem altogether.
My area is about the No. 1 postcode in the UK for identity fraud, which the police largely put down to post being stolen from communal hallways and areas that do not have individual post boxes. The other postcodes in the top 20 for identity fraud are generally also urban areas that suffer from the same sorts of issues. As I said, I would like to put down a marker and suggest that we look more closely at changing the way we communicate with people. There are more than 70 million mobile phones in the UK, and changing rental habits mean that the length of tenure in both council and private stock is declining, but many young people will have the same mobile phone number and e-mail address for much longer than they stay at the same postal address. We need to catch up a little with where the modern world is going.
As well as the problem of shared hallways and the lack of private post boxes, I am acutely aware that we must consider the nature of the accommodation lived in by some of those people about whom the Committee has been talking, who may find themselves more readily drawn into the sanctions regime. They are vulnerable people who perhaps live in hostels, bed and breakfasts, or housing association accommodation designed for ex-offenders and vulnerable adults—generally not places where people can rely on getting post through private mail boxes. Some of those situations might be patchy at best, and I would not wish people to become vulnerable to an escalating sanctions regime because they are not aware that a process has begun. I hope the Minister will respond to that point.
I have spoken about this matter in relation to a number of other areas of public policy. No one is contemplating our going down the route of registered post, because the same problems are associated with that, but we are moving into a different era and we must look at greater use of mobile technology. That is common in the private sector and delivers all sorts of things from tickets to services. It might be cheaper, but I am particularly interested in communications that are effective in delivering critical messages that could make an important difference to someone’s life in a way that is as reliable as humanly possible.

Karen Buck: I congratulate the hon. Lady on her contribution to this important issue, and I will add a few words. My constituency shares with hers the characteristic of having the highest levels of multiple occupation in the country, so I am very aware of the problems that she describes. Indeed, I know of a number of cases in which sanctions and disbenefiting were imposed because correspondence went missing. For instance, all the houses on two large estates that had been the subject of regeneration programmes were given fresh addresses, being changed from blocks to streets. To this day, DWP and other agencies send letters to addresses that no longer exist and then subject people to sanctions and other penalties because the correspondence does not arrive.
I support what the hon. Lady says, and I hope that the Minister will be sympathetic, but I stress that it is disproportionately the people in the private rented sector, and sometimes other sectors, who have the greatest difficulty with mail who also have the greatest difficulty with internet access, and sometimes with being able to afford reliable forms of mobile communication. It is very much a question of looking at local circumstances and building in safeguards on forms of communication, rather than looking for alternatives, as we will in later debates on welfare advice, in those constituencies and boroughs that are likely to have the biggest problem.

Chris Grayling: My hon. Friend the Member for Battersea and the hon. Member for Westminster North make an important and sensible point. I am open to considering the matter carefully and I am happy to take from this debate a request to Jobcentre Plus to consider it. I see no obvious reason why we should not seek to adapt what we do, within a sensible time frame, to reflect the issues that they raise.
It is clearly in everybody’s best interests that the message gets home and that we improve our communication techniques. As the Committee will know, we already do some work with online technology, but I shall take away what my hon. Friend said and write to her with more information about what has been done. I shall also write to the hon. Member for Westminster North. I am happy to see whether further steps can be taken to ensure that the message is brought home.
Reference was made during the debate to the appeals process. I highlight a note that I wrote for the Committee about appeal rights in relation to claimant responsibilities. We discussed appeal rights relating to claimant responsibilities at our sitting on 5 April, when the hon. Member for Glasgow East asked a number of specific questions. I thought it might be helpful to put down on paper information about the appeals process and its statutory basis for those who are not fully aware of the facts. We shall obviously have to answer questions that may arise, but I hope that the information will be useful, particularly the explanation of how we intend it to operate alongside universal credit. With that, I urge that the clause stand part of the Bill.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clause 27

Stephen Timms: I beg to move amendment 159, in clause27,page13,line27,leave out from ‘State’ to end of line 28.
The amendment is to subsection (5), which provides for two forms of sanction on claimants who fail to meet a work-related requirement. It states:
“Regulations…may provide that a reduction under this section in relation to any failure is to have effect for—
(a) a period continuing until the claimant meets a compliance condition specified by the Secretary of State,
(b) a fixed period not exceeding 26 weeks which is—(i) specified in the regulations, or (ii) determined in any case by the Secretary of State”.
The amendment, however, is about paragraph (c), which provides for “a combination of both” which opens up the possibility of claimants being sanctioned for an indeterminate period until they comply and then, having complied, being subject to a sanction for another period of up to 26 weeks. That seems to be how the combination under paragraph (c) would operate. If that were the effect of the provision, it would make it highly discouraging for people in work and potentially damaging to families with children. In any case, 26 weeks is a long time in such circumstances. I hope that the Minister will give a compelling explanation, or accept that these two forms of sanction ought to run concurrently if they are both imposed, rather than one after the other, which appears to be what is envisaged at the moment.
Barnardo’s has expressed concerned about the effects of the proposals, saying
“even if regulations only provide for a maximum of a 13 week fixed sanction, the option for 26 week sanctions to be imposed if policy changes will still be available, as this is the period stated in the Bill.”
It has picked up on the suggestion that, in practice, the Government would tend only to apply the period of 13 weeks, and therefore asks, perfectly reasonably, why, if that is the case, the Bill provides for a period of 26 weeks rather than 13. Barnardo’s states:
“As this provision is both likely to deter some claimants from making efforts to comply with requirements and to push some families deeper into disadvantage, we recommend that it be removed. If the Government's intention is that under Clause 27(5)(c) the two forms of sanction in subsections (a) and (b) should run concurrently, then the clause… would need amending to reflect that.”

Chris Grayling: Amendment 159 would ensure that the sanctions provided for in clause 27 could last for either a fixed period of up to 26 weeks, or for an open-ended period, until the claimant meets a re-compliance condition. It would remove the power to apply sanctions that combine both open-ended and fixed periods.
Let me explain our strategy. We intend to use clause 27 to provide for three broad levels of sanction. There would be fixed-period medium-level sanctions for claimants who are subject to all work-related requirements who fail to take all reasonable action to search for work or be available for work—being available for work is a long-standing element of the sanctions regime. There would be lower-level sanctions for claimants who are subject to all work-related requirements, or work preparation and work-focused interview requirements, who fail to meet particular work preparation or connected requirements—perhaps they have not taken part in skills training, not prepared a CV, or have failed to turn up for their fortnightly job search review. Finally, there would be open-ended sanctions for claimants who are only required to attend work-focused interviews.
The amendment would prevent the proposed application of lower-level sanctions. We intend there to be two components of a lower-level sanction: an open-ended sanction that continues until a claimant re-engages with requirements, followed by a fixed sanction. We want fixed sanctions to last for one week for a first failure, two weeks for a second, and four weeks for a third and subsequent failures.
The purpose of the open-ended element is straightforward. If someone does not turn up for their work-focused interview and does not make contact, why should we continue to pay benefits until that person decides to turn up and say, “Here I am”? Should that person, at that point, be able to say, “Right, that’s the end of my sanction”? I do not think that they should. If someone does not turn up, does not engage and does not participate, they should not collect benefits while they are not in contact, but there should still be a consequence. Someone should not be able to turn up and say, “Well, that’s all right then.” It is not all right, actually. That person has stepped way outside the rules of the system, and there should be a consequence.
Our proposals would also have the benefit of removing some anomalies. Somebody who has committed a previous offence, for example, can turn up four or five days later, having skipped their first interview and perhaps the second one that has been booked for them and say, “Oh well, that’s fine. I’ll carry on as I am.” We want to send a very clear message: if a person does not bother to turn up or engage, there are consequences. The benefits will not start again until the person re-engages, and then there will be a short-term—not long-term—consequence thereafter, because of not having re-engaged.

Stephen Timms: Will the Minister clarify what the short-term consequence is? He mentioned four weeks, but the Bill provides for a period of 26 weeks. How long would that consequence last?

Chris Grayling: We intend to set out in regulations, for lower-level sanctions, a maximum of four weeks. In this case, therefore, for the open-ended sanction at a lower level, we are talking about a four-week period. My view is that we should be clear to claimants that there is a duty to take part, and if they do not take part and do not engage there is a significant consequence.

Stephen Timms: If it is four weeks, why does it say 26 weeks in subsection (5)(b)?

Chris Grayling: I have just explained that clause 27 provides for three elements to the sanctions process. Failure to make oneself available for work is a much more significant offence, which can command a sanction lasting up to 26 weeks. I am setting out for the right hon. Gentleman our intention to use the disengagement sanction for lower level issues and to require people to re-participate. If someone is not turning up for their fortnightly signing-on and job search interview, they will face a consequence; their benefits will stop until they re-engage, but then, on top of that, there is a consequence to their failure to participate. I hope that this is not a matter on which there are differences between us. To say that there are consequences for not participating is a sensible approach. If someone does not turn up and does not engage, their benefits should stop; and when they re-engage they should face a short-term consequence for having committed a breach.
To return to the point I made this morning, we expect Jobcentre Plus advisers to ensure, to the point of carrying out home visits, that they do not sanction people with mental health problems. That is absolutely clear, it is our aspiration and it is an instruction from Ministers to Jobcentre Plus. We expect advisers to look at individual cases, and if there is an impact from a mental health condition, we do not expect a sanction to be applied. What we have put in place across the sanctions regime is a sensible balance in which there are real consequences for failure to participate in the process and for ignoring what has been agreed, and this is a part of that balance. Our intention is that if someone does not turn up, does not engage and does not arrive at Jobcentre Plus, their benefits will stop until they do so. It is exactly as the right hon. Gentleman has read it, and we intend to proceed accordingly.

Stephen Timms: Perhaps I am being a bit slow, but I do not quite understand what the Minister is saying. He made a perfectly good case for subsection (5)(a)—that the claimant meets a compliance condition before their benefit starts—and he made a good case for why the sanction might last a bit longer than that and suggested four weeks, but he has not made a case for a 26-week sanction at the end of the compliance sanction, at least not in a way that I understood. I do not understand the circumstances in which the 26-week sanction would apply rather than the four-week sanction, which he has defended in a way with which I am entirely happy. When would the 26-week sanction arise and on what grounds?

Chris Grayling: A 26-week sanction would arise in a case where someone was failing to make themselves available for work. It is not our intention now to introduce a fixed sanction in excess of 13 weeks under the clauses, but we want to leave ourselves with flexibility to deal with an offence such as the failure to make oneself available for work. As evidence emerges on how arrangement works with the universal credit, we want the flexibility to increase the sanction to 26 weeks. We intend to have a significantly longer sanction within the provisions of the clause that covers things such as the failure to make oneself available for work.

Stephen Timms: I am pleased to hear the Minister’s reassurance on the 13 weeks—that it is a practical upper limit on the extent to which the sanction will be used. This is just me being slow but I have not entirely understood what the distinction is between those things for which there is a four-week, run-on sanction after coming into compliance and those things for which there might be a 13-week sanction. What is the distinction and how will those different cases be treated?

Chris Grayling: I am happy to clarify. The right hon. Gentleman knows that the system already regards the failure to make oneself available for work as a more serious offence than simply failing to turn up for a work-focused interview. We intend that differentiation to remain.

Stephen Timms: I am grateful to the Minister. I think that I now understand the distinction. I am pleased that we have that 13-week upper limit rather than the 26 weeks in the Bill. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 27 ordered to stand part of the Bill.

Clause 28

Stephen Timms: I beg to move amendment 78, in clause28,page14,leave out line 20.

James Gray: With this it will be convenient to discuss amendment 152, in clause46,page27,leave out line 25.

Stephen Timms: I want to press the Minister on the proposal that has given rise to a great deal of concern whereby hardship payments are to be replaced with loans. The amendment would remove the ability to make that substitution. It is quite right that, even if a family has conditionality applied, it can still claim for a hardship payment to avoid destitution. The White Paper suggested that those payments might be replaced in some circumstances by loans, and perhaps taken away entirely if there were over-reliance on them—a suggestion that has given rise to a lot of concern.
In its written evidence to the Select Committee on Work and Pensions, Barnardo’s said,
“The Government proposals for hardship payments…are vague…Barnardo’s would be very concerned if these payments of last resort were not available to families who could be in desperate financial circumstances.”
I would be grateful if the Minister set out the circumstances in which it is proposed that hardship payments will be replaced by loans. Will he accept that that change could well cause serious hardship? Depending on his answer, he might want to reflect on whether it is the right thing to do. Hardship payments, by definition, are given in case of hardship—someone has looked at the situation and decided that there is hardship. Will not recovering such payments often recreate the hardship that the payments were intended to avoid? What measures does the Minister propose to stop that happening?
This is a major change in how the system works. It has always been recognised that, even when sanctions are imposed, there will be cases where real hardship results—for children, for example—and where something needs to be done to alleviate that hardship. If in future all that will be done is to give a loan that has to be recovered, is there not a real danger of recreating the hardship that the payment was intended to avoid?

Kate Green: I, too, should like to ask the Minister to clarify one other point on the Government’s intentions regarding hardship payments. We were helpfully supplied before Easter with a paper from the Department outlining the likely content of the regulations that will support the clause. I noted that that would probably include defining the circumstances in which the claimant or household would be considered to be most vulnerable and therefore eligible for hardship payments. The briefing paper notes that that would be expected to follow the permanent provisions that apply in relation to jobseeker’s allowance. The briefing note suggests what some of those situations might be: the single claimant who is pregnant or responsible for a young person who would suffer hardship if no payment were made, people who have caring obligations, and young people looked after by the local authority.
The current regulations, I understand, also specifically include the situation where an individual or his or her partner is responsible for a child under the age of 16 and where that child would suffer hardship if no payment were made. I would be grateful for clarification from the Minister if that is also intended to apply in the new regime to parents, where a sanction imposed on them could lead to hardship for the child for whom they are responsible.

Chris Grayling: As the shadow Minister said, the amendments seek to prevent regulations being made which would allow for hardship payments to be recoverable. Alongside changes to the sanctions system, we want to improve the hardship regime so that the existence of hardship payments does not undermine the deterrent effect of sanctions. The challenge is that if you sanction somebody and take away their out-of-work benefits, but you then replace at least part of that money through an unrecoverable hardship payment, you diminish the effectiveness of the sanction. Many aspects of the system that we plan to introduce are similar to current arrangements under JSA, but one change will be to make some of those payments recoverable.
The Government recognise the need to ensure that a robust safety net is in place, so the change will not be applied to those claimants currently eligible for JSA hardship payments without being required to wait 14 days from the beginning of the sanctions period. As the hon. Member for Stretford and Urmston rightly said, they were set out in the note sent to members of the Committee. It will be based on the list currently contained in the 1996 JSA regulations. Regulation 140 for single people and 146(a) for joint claim couples, basically set aside the following groups: single persons or couples wherein at least one member is pregnant or responsible for a child or young person, or a household that includes a person eligible for a disability premium; a person who suffers from a chronic medical condition that results in their functional capability being limited; a person with significant caring responsibilities; and a person who is being looked after by a local authority, pursuant to the Children Act 1989. In each of these cases, for an award to be made, it has to be the person listed there who would otherwise suffer hardship, not necessarily the principal benefit claimant. We will add to the list claimants who would be entitled to ESA under the current system, and we will make any further changes to ensure consistency with the universal credit system.
In the case of those claimants who will be eligible only for recoverable payments, we will make it absolutely clear to them up front that that is the case. We also expect rates of recovery to be broadly in line with existing recovery arrangements. However, I think it sensible to be able to take a decision to recover payments where we are applying hardship payments after the 14 days have expired. I do not see why somebody should be subject to a three-month sanction, for example, for a major breach—refusal to apply for a job or accept a job offer—but be able to receive unrefundable, unrecoverable hardship payments. That is the key purpose of the change. The recovery of payments should help to incentivise certain claimants to meet their work-related requirements, while protecting the most vulnerable claimants and their dependants.
In response to the hon. Member for Stretford and Urmston on the subject of children, the 1996 regulations expressly do not provide an absolute blanket circumstance, but they refer to a person with significant caring responsibilities, which would cover the case of a parent with a child. She should bear in mind that the sanction does not remove the equivalent of the child tax credit—the child element of the universal credit when it is introduced—nor does it require us to withdraw child benefit or the housing element. There is simply a consequence in terms of an amount equivalent to the standard allowance. Yes, there will be some circumstances where there is a child under the age of 16 where no blanket rule is applied. That is sensible: one should not apply a one-size-fits-all to that group in the way that it is certainly necessary to do for the others.
I hope that Members will accept that what we propose is a sensible way forward. It is a change, and we freely accept that, but it is a common-sense change. If someone has committed a transgression, why should they be able to carry on receiving unrecoverable hardship payments? It is right and proper that we ensure that people can eat, but when the sanction period is over and they have sorted themselves out and are receiving money again, they should expect part of that money to be deducted to meet the cost of the support that they have received during the period when the sanction was applied.

Stephen Timms: The difficulty here is the reality of the situation that quite a lot of people find themselves in when they are on the receiving end of sanctions and then apply for hardship payments. It is by no means always their own fault that people find themselves in such circumstances. We have already heard examples cited in our debate earlier today of circumstances that were not the responsibility of the individual being sanctioned; they were in circumstances that have caused the sanction to be imposed.

Chris Grayling: Surely, the right hon. Gentleman will recognise that when somebody has been sanctioned through a mistake or through no fault of their own, they have the right to appeal. If they are successful at appeal, their previous financial position will be reinstated, and there will certainly be no question of recovering any hardship payment that had been made.

Stephen Timms: That all sounds fine when said in this Committee, but the reality of people’s circumstances means that they may not be sufficiently together to pursue that. The Minister has often talked about people with mental health problems and the way this affects them. The big problem is that as a result of the proposed change—along with some of the others debated today—we are likely to cause real hardship to significant numbers of people to whom nobody in the Committee would wish to see hardship caused. I accept that it is not the Minister’s intention that that should happen, but, unfortunately, the reality is that it is likely to happen.
The extent of the problem will only become clear when we see the next set of details that the Government produce. I am concerned that we are creating another opportunity for things to go badly wrong for the very people for whom nobody in this Committee would want to see anything go wrong.

Chris Grayling: I should clarify for the right hon. Gentleman and the hon. Lady the Member for Stretford and Urmston that the current regulations provide for children to be looked after, although that is not set out in the documentation. It is not our intention to change that, so I hope that assurance will again ease the right hon. Gentleman’s concern.

Stephen Timms: We are simply going to have to wait until we have got the full details before we make a proper evaluation. I will not press this amendment to a vote either, but I must express my concern about where the proposals could be heading. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 ordered to stand part of the Bill.

Clause 29

Question proposed, That the clause stand part of the Bill.

Kate Green: Could the Minister provide brief clarification in relation to clause 29? I am pleased that the delegation and contracting out functions do not apply to the sanctioning and hardship payment decisions. It would have been of great concern if they were delegated outside the public sphere. I therefore assume that the possibility of delegating and contracting out relates particularly to circumstances in which private and voluntary sector Work programme providers are the principal point of engagement with the claimant. In those circumstances it would make perfect sense for such providers to discuss the claimant’s commitment and the work-related activity that the claimant would be required to undertake.
However, as the Minister may be aware, when evidence was presented to the Work and Pensions Select Committee recently, some concern was expressed about the potential for confusion should claimants be dealing with the private or voluntary sector Work programme providers while also continuing to have some sort of signing on and review arrangement with Jobcentre Plus. Some of the witnesses to the Work and Pensions Select Committee were concerned that that procedure needed to be streamlined so that claimants were absolutely clear about who was requiring them to do what, so that they did not fall foul of requirements of one or the other, or assume that by attending a meeting with one, they had met the requirements of another, and so on. We understood that a number of Work programme providers themselves were also concerned about this. Some attempts were being made, for example, to try to co-locate Jobcentre Plus and Work programme provider offices so that the package of intervention with claimants could be available in one place and potentially offered at one time, but clearly that is not going to be feasible everywhere. Once Work programme providers and non-statutory providers are in place it could mean that claimants will have to go off in two different directions for two different sets of meetings and interviews.
I would be grateful if the Minister could indicate how that possible confusion might be best addressed. Has he discussed with Work programme providers their concerns about the issue? If claimants, as a result of the potential confusion but without any malicious intent, failed formally to attend one bit of what we might call the logging-on process but were otherwise completely compliant, can he assure us that the much more subtle and discretionary process that we were discussing a few minutes ago will be well attuned to taking that into account?

Chris Grayling: I can assure the hon. Lady about how we intend the process to work. We have had many conversations with would-be Work programme providers over the months about sanctioning, and there were divided opinions: some wanted the power to sanction, others clearly did not. Obviously, a defined role for them and for Jobcentre Plus is important.
Our intention is, as the hon. Lady rightly said, that Work programme providers will not have a power to sanction. They will have the right to make a recommendation to Jobcentre Plus about the need to sanction, but they will need to provide an explanation, and it is down to the Jobcentre Plus decision makers to ensure that they are confident that the decision is right and then to make that decision. The sanctioning power will clearly remain with Jobcentre Plus.
Once someone has been referred to the Work programme, all the requirements about job search and related activities set out in the earlier clauses will be a matter for the Work programme providers. They will have the power to require someone to undertake particular activities that will be beneficial in helping that person to move into work—effectively, they are acting as agents for the Secretary of State, as provided for in the clause and as related to the various activities set out in the previous clauses.
Our intention is that the role of Jobcentre Plus at that point should be limited to two things. First, simply, is the fortnightly signing off. We felt it appropriate and necessary to retain a link with Jobcentre Plus, albeit simply through that mechanical activity of going in once a fortnight and signing on—a quick summary of what people are doing and whether they are doing fine. Apart from anything else, that gives them an opportunity to express any concerns, so that Jobcentre Plus is in contact with what is happening to the individuals, but it is not directing them to do anything. It is engaged purely in a formulaic catch-up and the process of the fortnightly signing on, to enable the individuals to continue to receive jobseeker’s allowance and, subsequently, the universal credit.
Secondly, Jobcentre Plus will deal with sanctions, as and when the situation arises and if a Work programme provider recommends the need for a sanction to Jobcentre Plus. The provider will have to explain why and what the breach has been, and it will be for the Jobcentre Plus decision maker to decide whether the sanction should be applied. I expect that, in most cases, the sanction would be administered as recommended by the Work programme provider, but we will also give clear guidance to the Jobcentre Plus decision makers that they should not always take the word of the provider as gospel but should be ready to ask questions if they have doubts about anything.
The role of Jobcentre Plus while the person is on the Work programme should be limited to those two things. The nature of the claimant commitment at that point becomes very much a move from Jobcentre Plus to being a further set of tasks agreed with the Work programme provider. I expect every Work programme provider and every claimant to sit down and have an initial, in-depth, work-focused interview to decide what kind of things that person will do, what kind of help will be provided and a programme to be set out for them as they proceed. That is our clear expectation—providers will have set out in the course of their bids a minimum level of support that they will provide to each individual referred. We have not dictated that, but we expect them to come forward and demonstrate that there will be a certain level of support provided to every single individual. Over and above that, they will tailor support depending on the needs of the individual.
I hope that that provides the hon. Lady with the reassurance she is looking for. We want a simple process. Effectively, when on the Work programme, any employment-related activities are entirely a matter for the Work programme provider, but we need the individuals to come into Jobcentre Plus once a fortnight to keep in touch and to sign on formally, but that is all.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Kate Green: I beg to move amendment 48, in clause30, page15,line21,at end insert—
‘(c) piloting shall measure the impact on health outcomes of any regulations under clauses 13 to 28.’.
I welcome the provisions in the clause. They allow for the piloting of some of the changes that the Bill seeks to introduce. We are all mindful of the radical extent of some of the proposed changes. The focus of the piloting is to test the extent to which the provisions enable people to remain in work or to obtain work, which is absolutely the right thrust. Piloting has a long and useful history in welfare reform and I was pleased to see that we will, at least to some degree, have that opportunity in relation to this legislation.
As hon. Members will be aware from a number of earlier debates on this Bill, I am concerned about the potential health implications for recipients of the universal credit, which is one of the less obvious consequences of the measures, especially when financial sanctions and penalties are imposed. Given that the current levels of benefit that are likely to be read across to the universal credit are already insufficient to secure a healthy diet and to meet other basic needs satisfactorily, I am particularly anxious that we continue to take account of the health impact on universal credit claimants, especially if those payments could be reduced.
There is considerable evidence already of the damage that financial sanctions can do to child health. Families who have been sanctioned, as opposed to those who have not been in receipt of any financial sanction but who are otherwise on social security payments, experienced a 30% higher incidence of hospitalisation, a 60% greater risk of food insecurity, which includes being under weight as the result of a lack of a nourishing diet, and a 90% greater risk of being admitted to hospital on an accident and emergency visit.
On 26 March, Mintel, the market research company, reported in The Grocer Magazine—this debate covers wide-ranging territory and many sources—that the cost of fresh fruit has risen by 7.9%, which has affected people in low income groups and people under the age of 25. Some 26% of under-25-year-olds and 22% of those earning less than £15,500 a year say that they now eat less fruit and vegetables because of the cost. Families with young children are among the most likely to cut back. Some 30% of those with children under the age of five and 26% of those with children under the age of 10 claim that they were reducing the amount of fruit and vegetables that they ate.
Clearly, healthy diets are already under pressure for families who are on low incomes and who are currently reliant on safety-net benefits as a result of rising costs. I am concerned that we keep this issue on the radar, particularly in the context of our discussions today about the way in which the universal credit will be both paid and potentially sanctioned. We are also concerned about the payment mechanism, especially where it is not clear that the payment will necessarily go to the mothers who are most likely to be incurring the expenditure and making the decisions in relation to the family diet. We are not clear about what sorts of choices couples may make about which member of a couple may seek to receive universal credit. I am still not clear about the circumstances in which couples will be enabled to exercise such a choice. On the health outcomes of universal credit, it is important that we are mindful that there is at least a possibility—I would go further and say a likelihood—that universal credit in couples will typically be paid to the man in the household, which may have adverse impacts on children’s health and well-being and on their diets.
These are not irrelevant or trivial points. I hope that the Minister will understand that I do not make them in the spirit of creating difficulties, but because I am genuinely concerned that we are moving to a different kind of benefit payment and that the support directed to children in particular is less clear-cut in a single, integrated credit. We must be aware of the health impact that this policy change will have on children and on families in general.
We ask in the amendment that the piloting should review specifically the health impacts and that there should be a measurement of the health outcomes affected by the introduction of universal credit and the associated regulations. That will require cross-government activity. There will need to be discussion with colleagues in the Department of Health and I am keen to hear from the Minister about what discussions have already taken place on the introduction of universal credit and any health impact. There will also be an interest at local level because of the new public health duties to be undertaken by local authorities in England. Again, I am keen to hear whether there have been any discussions about possible health implications with the Local Government Association and those who will be responsible for public health locally.

Sarah Newton: I am sorry to intervene on the hon. Lady, but I am sure that her vast experience before coming to Parliament will have made her aware that the types of health outcomes that she seeks to measure are longitudinal. We are blessed in this country that repeated Governments have given a lot of support to some fantastic studies, such as the English Longitudinal Study of Ageing, which will be able to monitor, over time, the impact of any Government policy on particular groups of people. Under the piloting suggested, I do not think that it will be possible to look at the health impacts in the way described by the hon. Lady, because they take a very long time to measure. Those measurements will be available over time.

Kate Green: I am grateful to the hon. Lady, whom I know also takes an interest in the subject. She is right that there are some excellent longitudinal sources that will provide a much broader picture of health outcomes, and not just specifically in relation to the changes being introduced by this Bill and associated regulations. However, it will be possible, through some form of sampling and surveying activity, to understand what choices families are making as a result of the introduction of universal credit. It will be particularly important to understand what happens to payments within the household. The issue was raised in an earlier debate and it is a very real one in relation to healthy diet and good spending on children’s well-being. I hope that the Department would be interested in exploring the kind of supplemental research that could be undertaken as part of the early piloting process of some of the proposals in order to understand the potential disadvantages of a household-based payment of the credit and how they might be addressed effectively.
I hope that the Minister will respond positively to the spirit of the amendment and to the queries that the design of universal credit raises about how money will reach children in families. I am keen to hear what discussions, if any, have taken place with colleagues in the Department of Health about the health impact of these measures.

Sheila Gilmore: We have heard a great deal from the Minister about the intentions behind the provisions, particularly those that we have debated today and in previous sittings that set up a complex series of requirements both for people who are out of work and, for the first time, for people who are in work and in receipt of universal credit. Those people will primarily be in low-paid work, especially since it is clear that universal credit will be paid to those who are in work on relatively low levels of income compared with the tax credit system. Although they will be in work to some extent, we will be dealing predominantly with people who are on low pay.
It has been said on several occasions that people who have mental health problems will be dealt with sensitively—although I am not entirely clear what that will mean—but it is relevant in health terms to look at some of the things that have happened in relation to employment support allowance, which will be incorporated into universal credit in due course. I appreciate that the previous Labour Government introduced employment support allowance; as I have said several times in debate on the subject, when I came to the House I agreed in principle with the aim of the employment support allowance, but in talking to people about their experience, I have learnt about some of the operational difficulties that have arisen. Some people, particularly those who have mental health difficulties and even some other kinds of illnesses, find complying with the process of constant requirements very difficult indeed. Even in the short term—I appreciate that some of the health implications are long term—it can have severe implications for people’s health, just at a point when they may be recovering.
A constituent came to see me in January to explain what he had been through with ESA. He told me that he had been refused benefit, had appealed, had a long wait for that to be dealt with and, in six months, was reassessed and put through another process. He felt that that had affected his health badly, and had made his recovery from the breakdown that he had suffered, which had caused him to become unemployed in the first place—after a long working career; he was not a long-term recipient—more difficult. He felt that some of the processes that he had been through had affected his health adversely.
That is why it is important that health implications are looked at across the piece, including for people who have some mental health difficulties. The Bill does not state that such people—unless, presumably, they fall into the support group—would not be expected to comply with some of the requirements, even if they are interpreted sensitively and not imposed without due care and attention. It is relevant, even in the short term, to look at the health implications for some groups of people and to ensure that the processes that are put in place do not have an unintended adverse impact. If those implications are looked at and reviewed, it is possible to include changes in the system to avoid such an impact in future.

Chris Grayling: I understand the purpose of the amendment, and I understand the commitment of the hon. Members for Stretford and Urmston and for Edinburgh East to requiring pilots to measure the health impact of the regulations. I have a lot of sympathy with what they have said. We want to establish a system of requirements, sanctions and employment support that reflects and is responsive to an individual’s health needs.
In a moment I will explain why the amendment is unworkable, but I want to give the hon. Member for Stretford and Urmston some assurances about our plans, which I hope will mean that she does not want to press the amendment.
The Bill addresses health issues. Clause 19, for example, ensures that benefit payments will remain unconditional for claimants who, because of ill health or disability, cannot be expected to work or to prepare for work. Clause 21 ensures that any claimant assessed as having limited capability for work cannot be made to look for or take a job.
More generally, when we impose requirements, advisers will ensure that they fit in with an individual’s personal circumstances and capability, hence the point I keep making about mental health, which we regard as extremely important. Where necessary, we will get expert help with that. We will, for example, refer disabled claimants to disability employment advisers to assess the particular support that they need. There are also the specialist support programmes such as Work Choice and the access to work programmes, which are overseen by the Minister with responsibility for disabled people, the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Basingstoke.
We want to get it right, and we want to evaluate the health impact of our policies wherever necessary. Having a particular requirement to measure the health impact of any pilot or regulations, however, would not be helpful. The purpose of this chapter of the Bill is to improve the chances of people entering work or doing more or better-paid work. It is right, therefore, that any pilot must assess whether regulations on claimant responsibilities help deliver those goals, too.
I assure the Committee that, as part of any evaluation, we will consider other impacts. Where health is a potential issue, we will consider it as a possible impact, but it will not always be an issue. A requirement to measure the health impacts might be an unnecessary burden.
Looking at the clauses on work search requirements, a situation could be imagined three, four or five years down the track in which it is clear that a claimant’s job search prospects would be dramatically enhanced by, for example, putting a self-advertisement on Facebook. We might pilot that to assess whether it is sensible to require a claimant to put a personal advert on Facebook and to work with them to do so. Clearly, that would not be a health-related requirement, and it would be an over-convoluted process if we had to carry out a detailed health impact assessment in order to try it out as an approach with some of our claimants. That is a simple example, and it might be totally irrelevant for the future, but there will be cases in which we want to pilot something to see if it enhances the process, in which an extra element of conditionality makes it more likely that a claimant will get a job, but has no relationship to health matters. It would, therefore, be too complicated and bureaucratic to measure health outcomes in such cases.
I am happy to give the hon. Member for Stretford and Urmston a commitment that we will look at health outcomes for matters related to the clauses, which address sanctions and conditionality, where a pilot potentially impacts on health issues. I am happy to assure her that we will consider health, but it will not always be necessary and including that in primary legislation may in some cases incur unnecessary costs and complexity.

Kate Green: I am grateful for the seriousness with which the Minister has addressed our concerns on the Bill’s potential health consequences. I particularly welcome his clear commitment to ensuring the careful treatment of benefits claimants with mental health issues.
I note and accept what he says about the clause’s specific focus on piloting and testing the extent to which people are more likely to remain in work, obtain work or obtain better-paid work. However, good health is a prerequisite for being in paid employment. Those in poor health are far less likely to have the wherewithal to go out to look for work, stay in work or increase their hours of work.
I welcome the opportunity that we have had this afternoon to put on record the importance that the Minister attaches to the health consequences and impacts of the Bill and the assurances he has given us on that. Given that, I shall not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put and agreed to.

Clause 30 ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.

Schedule 1

Stephen Timms: I beg to move amendment 58,page102, schedule 1, leave out lines 18 to 20.
The amendment proposes the removal of the enabling paragraph that allows regulations to specify a minimum income floor for particular people. In commenting on that, I will draw heavily on a very helpful briefing that was probably provided to all Committee members by the Low Incomes Tax Reform Group of the Chartered Institute of Taxation. The Minister and many Committee members will be familiar with the value of that group’s work in support of people on low incomes moving into self-employment.
The Low Incomes Tax Reform Group gave evidence to the Committee at the beginning of our deliberations and drew attention to the danger of the move from working tax credit to universal credit. At the moment, that represents a significantly backward step for self-employed people and will affect the viability of self-employment for some. The group’s briefing makes it starkly clear how much worse off some self-employed people will be if the Bill is left unamended and if this part of schedule 1 is used in the way that the White Paper indicates: to assume that everybody in self-employment is earning at least the minimum wage for the number of hours that they are working in their business.
The White Paper proposed that, under universal credit, the self-employed should be deemed to have earnings at least equal to the national minimum wage for the hours that they work. It will probably be clear to everyone in Committee that that is simply not a realistic assumption for a significant group of self-employed people. The earnings that such people draw from their business will not, for significant periods—not just at the beginning of the business—be as large as the minimum wage. In imposing an income floor on self-employed people in such a way, the danger is that the measure will run strongly counter to the Government’s intention to make work pay through universal credit, specifically for people who see an opportunity for becoming self-employed. That is why the amendment proposes the removal of the enabling paragraph in the schedule.
The briefing from the Chartered Institute of Taxation points out that the working tax credit succeeds in encouraging self-employment because of the alignment of working tax credit with the tax system in its structure and in how it measures and defines income. Under working tax credit, tax definitions are used; under universal credit, it looks as though benefit definitions will be used. If a self-employed person applies for working tax credit, the applicant simply has to insert in the trading income box on the working tax credit claim form the annual declaration—the net profit—which also appears on his or her self-assessment tax return. If there has been a trading loss, they write “nil”.
By contrast, income measurement for the DWP requires the claimant to report income and expenses on a cash-flow basis, rather than on an accruals basis as for tax, and so imposes an extra reporting burden. Incidentally, there is a real question mark about how the system can be made to work in practice for people who will expect and hope to receive universal credit every month, because the actual income received by a self-employed person will clearly be extremely volatile. Some months it may be none, and other months, if an order comes in or a deal is done, it may be quite a lot. We have not yet been told about that. If the Minister can shed some light on that, it would be helpful for not only the Committee, but all those listening to our deliberations.
In practice, how can a monthly universal credit assessment be carried out for the self-employed? Currently, it is done on an annual basis with working tax credits, and the view of the Chartered Institute of Taxation and others is that that has actually worked particularly well in making self-employment viable and feasible for many people for whom it would not otherwise have been a realistic prospect.
Through the tax system, and by extension, therefore, the tax credit system, there is a recognition of the economic reality of how a business is doing by taking into account not only income minus relevant expenses, but, for example, investment in business assets and equipment through the capital allowances system, which is available for tax credit applicants, and through trading losses, which can be set against other income or against the profits of earlier—in tax—or later, in tax credits, periods of the trade.
In the income definition that is used in the benefits system, however, there is no allowance for capital expenditure, depreciation or losses. The tax system has ways of disallowing losses or other deductions that do not conform to certain rules or are not genuine. In particular, loss relief is not allowed unless the business is carried out on a commercial basis and with a view to generating profit. The whole system, as one would expect, as it belongs in the tax system, has been worked out well from a self-employed person’s point of view.
The Chartered Institute of Taxation went on to say that the fact that trading income for the purposes of working tax credit is measured in the same way as trading profits for income tax purposes ensures that working tax credit can promote work for several reasons. Ordinary business expenses are deductible in computing profit and, therefore, working tax credit trading income. Moneys that the business owner invests in essential business equipment, such as premises, are reflected in the tax system through capital allowances and, therefore, in working tax credit trading income. Tax, and, therefore, working tax credit, recognises a nil profit in a period in which a business generates a loss. That allows the loss to be set off against other income, including, for working tax credit, other income of the trader’s partner and the profits of other, more profitable periods.
Tax credits take into account actual income from capital when assessing entitlement, so that business capital and bank loans, for example, which generate little or no income, do not artificially depress the amount of support a self-employed person receives—I will return to that point in a moment. Alignment with the tax system in tax credits allows a self-employed person to compute their profits or trading income once for one assessment period and use the result for both tax and tax credits. That substantially reduces the bureaucratic burden on the self-employed person and frees them to get on with running their business, which we all want.
The Chartered Institute of Taxation went on to say that such advantages will be removed if the existing DWP rules for measuring and defining income from self-employment were adopted for the purposes of universal credit. The DWP recognises expenses as a deduction from trading income, but no allowance is made for investment in essential business equipment or for trading losses. Computing self-employment income week by week, rather than annually, and on a cash-flow basis, rather than an accruals basis, would mean having to compute business profits twice—once for tax and once for DWP purposes—an extra reporting obligation that would eat into the time available for business activity.
My next point is the one that I said that I would come back to. If a bank loan or other start-up capital were to be subject to the normal tariff income under capital rules for universal credit with no adjustment or special disregards, that could substantially reduce or eliminate the claimant’s entitlement. That would be inappropriate where the loan or capital was used wholly in the claimant’s business, and it would result in the withdrawal of support for a self-employed venture at the time when support was most needed.
The Charted Institute of Taxation said that special rules will be needed to deal with fixed and circulating capital used in the business as it develops and grows, and I ask the Minister to comment specifically on that latter point. If, as we have discussed, someone with £16,000 or more is not entitled to any universal credit, will an exemption be made for someone going into self-employment who has taken out a loan to enable them to set up a business and get going, or will having that loan in the bank prevent someone from receiving universal credit?
The imposition of a minimum income floor, which is specifically addressed in this part of schedule 1, has been justified—or an attempt has been made to justify it—on the basis that too many self-employed people under-declare their profits. That is a justification for targeting those who manipulate their accounts to maximise their claim for universal credit; it is not a justification for denying support to what everyone agrees are the majority of cases that really need that support.
The Government have been clear that they want to encourage people to enter self-employment, and for a significant group of people that is the way to get off benefits and into work. The great danger is that, by assuming that those people will all get at least the national minimum wage for the hours that they work in their businesses, they will find it much harder. The Chartered Institute of Taxation has circulated some examples to show how dramatic that effect may prove to be in practice.
The notional income rules in tax credits, the enabling provision for which is replicated in paragraph (4)(3)(a) to schedule 1, already provide protection against such abuses. I do not believe that there has been a significant problem of people overstating their profits in applying for tax credits, and I suggest that creating an additional power to impose a minimum income floor adds nothing valuable to the powers that already exist. What is needed is the sort of wisdom that is built into the working tax credit system, which, by general consent, has worked well in supporting self-employment. That needs to be brought across to the universal credit, so that the significant gains that have been made are not lost.
What is worse about this provision is that, if every hour produces a deemed income in the way that the Bill suggests, a business in trouble will be incentivised to under-declare the number of hours spent on that business. If the system is set up in such a way, it will encourage avoidance. An obvious and straightforward point is that, if someone tells the jobcentre how many hours they have been working on their business and then say that they worked an extra hour, the jobcentre will assume that they earned an extra hour of the national minimum wage and that person will receive less universal credit. That is an undesirable set of incentives to build into the system, and I am afraid that it will inevitably lure a lot of well-meaning people into not being completely frank about how many hours they have worked on their businesses.
We know that self-employed people work for long periods to get their businesses going and sustain them during difficult times. Under this legislation, people who seek to get into work through self-employment will find themselves in a system that is unsympathetic to what they are trying to do. That is unlike the tax credit system, which has been very supportive.
The White Paper proposes that the minimum income floor should apply not to new businesses, but only when they become established. I hope that the Minister will tell us a little more about what he envisages. That is certainly a welcome concession, but we need to know what counts as established. Are we talking about a fixed period at the beginning of the life of a business, or will there be another way of measuring whether a business has become established? Nevertheless, it is a welcome adjustment, and I hope that the Minister will tell us how the Government and his Department will apply it. However, we all know that businesses can experience pretty hard times not only in the early years but subsequently, and for a host of reasons—for instance, as a result of economic difficulties such as those that we face in this recession, because a key customer has been lost, because of a bad debt or a succession of slow payers, or even by taking on a new employee.
The tax credit system offers adequate support, and the worry is that the failure to do so raises the serious risk that the self-employed will be discouraged from developing their businesses or, in some cases, from continuing in business. That is directly contrary to the Minister’s proper intention for universal credit and the frequently stated intention to encourage self-employment.

Sitting suspended for a Division in the House.

On resuming—

Stephen Timms: I was referring to how self-employment will be treated under universal credit and to the proposal addressed by the amendment that a minimum income floor assumed for those who are self-employed, irrespective of how much they earn from their businesses. In practice, the worry is that many self-employed people will no longer get the sort of help that has been provided until now to enable them to get their businesses started, up and running and flourishing—and sometimes helped through difficult patches, perhaps for a long time after the business was started.
It is a little surprising that it should be necessary to argue that universal credit should encourage self-employment at least to the same extent as working tax credit, particularly at a time when the ranks of the self-employed—already some 4 million people—are expected to grow. Ministers rightly draw attention to the potential of self-employment to assist the economy at difficult times, and people who previously claimed incapacity benefit will be transferred to jobseeker’s allowance via employment and support allowance. The Government clearly want to encourage self-employment, but it seems that self-employed claimants currently on working tax credit will have to migrate to a significantly less helpful system under universal credit. According to the experts, some people will have to give up self-employment as a result, which is directly contrary to the Government’s stated intention.
The Government may ask what self-employed people are living on if their businesses are earning little or no profit, but the truth is that the self-employed often work all hours and submit invoices that may sometimes not be paid. The income that they receive will go towards the rent for the premises and the business rates, the salaries of the people whom they work with, periodic payments on hired equipment and other normal business expenditure, plus drawings for the proprietor to live on. The income from the business might have to be supplemented by a bank loan or start-up grant, or something similar, to meet all the business outgoings.
People will be worried about whether they will be caught in future by the £16,000 cap. The bank loan will carry interest payments—an additional business expense—and unless or until the income exceeds the outgoings, the business will run at a loss. Imposing an assumed minimum income that is not achieved in such circumstances simply ignores the reality faced by such businesses. The Minister is right on occasion to draw attention to the strengths of his Department by comparison with other parts of the Government, and IT systems is a case in point. However, HMRC is good at dealing with and understanding the needs of the self-employed in a way that the benefits system is not.
To sum up, the success of working tax credit in encouraging self-employment rests on its recognition, in alignment with the tax system, of the economic realities of how a business is doing, particularly the need for investment in business equipment and the impact of trading losses. It is essential that universal credit is able to cope with a large influx of new self-employed claimants, many encouraged by the Government, including through the enterprise allowance.
The system needs to give adequate support through universal credit for those people not only in the early years of their business, but later on in lean or difficult periods during the life of that business. That has been accomplished through working tax credit, and I think that it would be the Minister’s wish to do so with universal credit as well. However, artificial, assumed minimum income is a real barrier to that being delivered. There is a clear distinction between profits, on the one hand, and drawings on the other. The system for universal credit needs to reflect that distinction if in-work support is to succeed in promoting work through self-employment, as we all hope that it will.

Chris Grayling: There are two separate ways in which we need to consider the amendment. Let us start by being absolutely clear: self-employment plays a vital part in our economy and society. It can be an important route into work for many people, including some of the hardest to help. We want to make Britain a great place to start and build a business, to enter self-employment and to help small businesses grow and develop. We have every intention of ensuring that we create a system that supports and encourages that.
We are looking at creating a predictable tax system that rewards endeavour, better access to debt and equity finance, and reducing red tape. The right hon. Gentleman rightly referred to the new enterprise allowance, one of a number of ways in which we are currently supplying self-employed people with the support that they need to develop their businesses. We will ensure that universal credit provides self-employed people with the additional financial support that they need to meet their living costs. That is a given.
We will do everything that we can to ensure that universal credit treats self-employed people fairly and properly and works with and helps the self-employed. However, that support must be reasonable. In supporting self-employed people through universal credit, we are removing any requirement to look for employment. Therefore, that self-employment must be genuine. In the current system, self-employed people can report no or very low income from their business activity and continue to receive full entitlement to benefits and tax credits. We think it right that, once people are in work, they should generally become more financially independent and less reliant on benefits.
We must take steps to ensure that we protect the taxpayer from supporting people who have the means to support themselves and their families. We want to safeguard universal credit, so that it does not end up subsidising people undertaking unprofitable activities. That is why we have given a lot of thought to the matter, and why in the White Paper we referred to the fact that we would set an income floor for self-employed people equal to the national minimum wage for their reported hours.
Of course, common sense must apply. We will not apply the national minimum wage to a 100-hour week for someone who works all day, every day, or all evening every evening, trying to make their business work. There must be a sensible upper threshold, probably around the time of a normal working week.
The problem the other way round is that, if we applied no floor at all and if we simply provided full payment of universal credit, including the standard amount that would normally be equivalent to what someone was paid if they were out of work and on benefits, we would be effectively saying that the taxpayer would provide financial support if someone said they were self-employed, regardless of how well they were doing and irrespective of whether the business was viable or whether there was any chance of achieving profitability. That would not be sensible, and it is where we have to draw a line.
We have carefully considered the responses to the proposal. Clearly, some consequences could arise from setting a floor for each hour’s work. In the Bill, we have provided flexibility to apply a floor in different ways if doing so is more appropriate. We need to apply a minimum income floor, alongside the range of support that we are providing for small businesses. We think that that strikes an appropriate balance between supporting enterprise and protecting the public purse.
Let me touch on some of the points raised by the right hon. Gentleman. In practice, the definition of income for benefit purposes is very close to the net profit for income tax. However, it is important to consider the income that is actually available to a person in deciding whether to pay a means-tested benefit. We must be careful and consider the nature of their income and how they use it. It cannot be right that someone can simply write-off a large chunk of income to secure access to state support. In fact, we are not reinventing the wheel; local authorities have long assessed the income of self-employed people for housing and council tax benefit. We are not inventing a new approach, but we will consider the detail as we develop the regulations.
I want to ensure that we get this right, and I am happy to accept input from Opposition and Government Members who have expertise in self-employment. We cannot have a situation whereby we continually subsidise unprofitable business activities and allow people not to look for a job. There will come a moment when somebody who is trying hard but getting absolutely nowhere has to accept that they need to do something else.

Stephen Timms: Will the Minister confirm that that will not apply at the beginning of a business’s life, as I think the White Paper said? For how long will the more lenient approach be applied?

Chris Grayling: We will probably take evidence on that in the next couple of years as we prepare for universal credit through the successes of the new enterprise allowance. The new enterprise allowance has been introduced for, and is funded for, a two-year period, but if it proves successful, we are likely to want to continue the initiative. We will want to learn from those first two years and identify the best way of continuing it in the context of introducing universal credit. I do not want to give the right hon. Gentleman a definitive answer now, beyond saying that we recognise the need to support start-up businesses, which is why, through the new enterprise allowance, we will give new entrepreneurs who have been out of work for a time the opportunity to retain part of their benefits for a period while they enter self-employment. We have not finalised the details.
I am happy to accept the right hon. Gentleman’s input on this. The issues are complicated and there are not simple, straightforward answers. We must do the best we can to get the dividing line right, so that we encourage enterprise and protect the taxpayer. That is where our focus lies. We will continue discussions with external groups, such as the Low Incomes Tax Reform Group, and work closely with HMRC to use its experience in shaping this. The DWP and HMRC are working closely to develop universal credit in its entirety.
The right hon. Gentleman referred to a loan, and I think that that would depend on the circumstances. No one would seriously suggest that, if someone got a bank loan to buy a van to set themselves up as a plumber, for example, having that loan in their bank account for three or four days while they bought the van would lead to their losing universal credit. That would be crazy. If they had a loan in their account for six months, it would be different, but I think it is highly unlikely, because someone would not borrow money, stick it in the bank for six months and pay the interest for no good reason. We will apply common sense.
The right hon. Gentleman also made a point about avoidance. As I said in a previous debate on that, there will be a self-reporting mechanism. We need a mechanism that can establish the monthly payment of universal credit for the self-employed. We said clearly that we will put in place a self-reporting mechanism so that people can ensure that universal credit payments reflect their circumstances.
In the end, this will all have to be evened out. There will have to be a proper assessment at the end of the year of what a self-employed person’s income was and the amount of universal credit they received. That was clear when we discussed the issue earlier. There will be a point of reckoning, to work out whether we paid too much or too little. The system will clearly be in the interests of those who are claiming. One reason for introducing the self-reporting mechanism is to ensure that our information is as timely as possible, so that we do not end up in the mess we ended up in with the tax credit system. Where possible, the final figures will be as close to being right as is feasible.
We must have the safeguards I described, and the problem with the amendment is that it makes it impossible set any floor, and I do not think that that is sensible. In an extreme situation, it is not enough for someone who does not really want to look for a job to say, “I’m self-employed”, and be able to claim the maximum universal credit with no job search requirements attached. We have to ensure that we are supporting self-employed people with viable businesses, even though, as the right hon. Gentleman rightly says, building a business is a challenge and a struggle. It is not easy, and we need to create a system that is as responsive as possible to that reality. However, we cannot support ongoing, consistently unprofitable businesses when, frankly, the person should be looking for employment opportunities rather than self-employment.

Stephen Timms: I am encouraged by the Minister’s recognition of the importance of getting things right. I share his view of the potential importance of self-employment for people who are currently on benefit.
I will illustrate what a big difference could be made—again, the information is from the Chartered Institute of Taxation—by using the position of a single person, who is over 25, has no children and is working 30 hours a week. That person is self-employed but actually earns nothing from the business—getting no money at all would not be an unusual circumstance for people beginning in self-employment. Under the current system, if such people were paying rent of £70 a week and council tax of £15 a week, they would get a little more than £137 a week through tax credits, housing benefit and council tax benefit.
Under universal credit, if people tell the jobcentre that they are working for 30 hours, they will be deemed to have earned £177.90 that week, even though in reality they have earned nothing. Assuming that they are truthful, they will get a total income from universal credit of £35 a week—more than £100 less under the new system than under the old system. That is an enormous difference; certainly, a big enough difference to dissuade a significant number of people from getting into self-employment at all—perhaps even big enough to persuade them to give it up.

Chris Grayling: The right hon. Gentleman’s argument—and, certainly, the amendment—suggests that that situation should go on, that the clause should not apply and that such people should be able to continue to receive £135 a week for almost as long as they choose to report a zero income.

Stephen Timms: No. There is certainly a case for having a grace period at the beginning of a person’s self-employment when the deemed income would not apply. I hoped that the Minister could be a little more forthright about it, picking up the point in the White Paper and encouraging us by at least saying that there will be such a period.
In my example, people would be significantly better off if they were not working at all. I know that is an extreme case, because in the example they are not earning at all from their business. However, for many people starting in self-employment, there will be quite a few weeks when they do not earn anything, and they would be significantly worse off from being in work because the jobcentre would treat them as if they were earning £137 a week from their business, even though they were earning nothing. That is a real problem, and I am glad that the Minister said that he is anxious to get the provisions right. I am also pleased that he will talk to the Low Incomes Tax Reform Group, because it has some helpful ideas.
In our example, people telling the jobcentre that they are working for 30 hours will lose 30 multiplied by £5.93 from universal credit that week, so the temptation for people not to be frank about how many hours they have put in would be huge. That is bad policy if it creates such incentives. I was grateful that the Minister said that the jobcentre would not make such assumptions. Perhaps there will be a cap, equivalent to a full working week, but for people working 25 to 30 hours on their business, there will be some real incentive problems as to whether they are frank about how much work they are doing and how much time they are spending on their business.
Having rehearsed an important concern about how universal credit will work in practice, I do not propose to press the amendment to a Division. I welcome the future discussion with the Minister that he mentioned about how the system will work in practice, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Stephen Timms: I beg to move amendment 13, in schedule 1, page102,line25, leave out ‘of’ and insert ‘or both’.
May I simply ask the Minister to confirm that the regulations that are mentioned in the schedule may specify circumstances in which the capital and income of both of the joint claimants may be disregarded? I just want to clarify what the wording in the Bill means. It refers to
“either of joint claimants.”
Will the Minister confirm that that gives the Department the power to disregard the capital and income of both of those claimants if it is deemed appropriate to do so?

Chris Grayling: That is straightforward. The answer is yes, I can give the right hon. Gentleman that assurance.

Stephen Timms: In that case, I do not wish to press the amendment to a vote, and I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

Stephen Timms: I beg to move amendment 57,schedule 1, page102,line26, at end insert—
‘(7) Regulations made under this paragraph must specify that a particular amount of income should be disregarded when calculating entitlement to universal credit, including in the following circumstances—
(a) where the claimant is disabled;
(b) where the claimant is a lone parent; and
(c) where the claimant is the second earner in a couple.
(8) Where the claimant’s eligibility for an amount of income to be disregarded, in accordance with subsection (7), is based on two or more sets of circumstances, the amount specified for each of these sets of circumstances shall be added together to calculate the total amount to be disregarded.’.
That brings us to the important topic of disregards. My hon. Friend the Member for Glasgow East will speak in a moment about paragraph (7)(a) of our amendment, which refers to disregards for people with a disability. I hope that the Minister will give us an encouraging response to paragraph (7)(b) about lone parents and their access to a disregard.
I want briefly to speak about sub-paragraph (c), which relates to the desirability of a separate disregard for the second earner in a couple. Universal credit disregards the first part of the household’s income and then applies a taper to the balance. In a two-adult household, it is proposed that the disregard will apply only to the first earner. The second earner in a couple will have their universal credit withdrawn at the rate of 65% from their first pound of income onwards. That means that second earners will have much weaker incentives than at present to get into a job. The current figure is 39%, going up to 41%, compared with 65% in the future, which is a much higher rate of benefit withdrawal for second earners.
That is an absolutely crucial point for tackling child poverty. The Government have said that they are committed to achieving the targets on reducing child poverty set out in the Child Poverty Act 2010, and I welcome that assurance. However, fiscally plausible strategies for tackling child poverty, especially when the Government’s resources are so stretched, rest on encouraging second earners in couples to move into work and, if they are already working, to increase their hours.
On current figures, 29% of couple families are in poverty if just one parent works full time. That proportion falls to 7% if the second member of the couple is in part-time work and to only 3% if both are in full-time work. Having that second earner in work makes a huge difference to whether families can earn their way out of poverty.
In families with caring responsibilities, according to the Women’s Budget Group, the second earners, who are usually women, are more sensitive to work disincentives because it costs them more in time and money to start work. With a 65% taper applying from the very first pound, there is a serious new discouragement to second earners to move into employment.
The consequences for child poverty could, over time, be very serious indeed. In our discussion this morning, the Minister said that he would use conditionality to require people to increase their hours and move from a part-time to a full-time job. I suppose that he intends to apply such conditionality to second earners in couples.

Charlie Elphicke: Forgive me if I am not following fully the right hon. Gentleman’s argument, but it sounds as though he is making the case for an individual-based assessment, rather than a household-based assessment. Is that correct or have I misunderstood?

Stephen Timms: At this stage, all I am arguing for is a separate disregard for the second earner, so that some portion of their income is not affected by a withdrawal of universal credit. The Government have set out for us a commendably straightforward architecture for universal credit. There will be a disregard for the first part of someone’s earnings and a withdrawal of the standard rate subsequently. I am asking: what about the second earner?

Charlie Elphicke: Will the right hon. Gentleman tell the Committee how much he feels that that disregard should be and what kind of cost it might incur for the DWP and the Exchequer?

Stephen Timms: Potentially a very large one. I have tabled some questions about that and, of course, the answer to what the cost would be depends on the level at which the disregard is set. It could be a very significant sum, and that may well influence what we do with the amendment when it comes to deciding whether to vote for it. It is important to recognise the realities of the new environment into which we are moving. As I say, there appears to be a significant disincentive for second earners in couples to move into work compared with the current system.
If the Government are going to use the stick of sanctions and all the paraphernalia we were talking about earlier to force people who are working part-time to work longer, I am not sure how the conditionality would work for the second earner in a couple who is not currently working. Presumably, sanctions might well be imposed on the first earner to force the second earner to make themselves available for work. Perhaps the Minister can explain how that will work. Certainly, he has explained that he wants to impose conditionality on people who are working for shorter hours to force them to work longer. It seems odd to be doing that at the same time as making the benefits of work so much fewer than they are at the moment because second earners in couples will have no disregard.

Margaret Curran: It is a pleasure to speak this afternoon. As my right hon. Friend said, I will make reference to paragraph (8) of our amendment. Before I address the details of the measure, it is worth bearing in mind the context and reminding ourselves what is in our hands as we go through the Bill. The measure is, indeed, a major shift in welfare provision in this country. As we go through the details, sometimes it is easy for us to forget the scale of the change that is about to be implemented. Despite the many differences in Committee and, indeed, the general way of things, there is a core agreement among us about the need for change if reform is to be introduced. We wish it to be effective and to meet the proper targets.
In all the discussions and disagreements that we have had on the changes to be introduced, no one in the Committee has said that they think that disabled people should be worse off as a result of the changes. We all want to empower disabled people, assist them to get back into the workplace and to live full and proper lives. I do not think that we should mess up some of our political disagreements in that; we can share that aim. As we look at the detail, we must ensure that that is the outcome of what we do. It is reasonable to say that the detail of these changes should be measured against that big policy outcome.
One of the other struggles that we have when we talk about welfare policy and welfare reform is that things get very technical. We are talking about the realities of people’s lives—as my right hon. Friend has said, the lives lived in messy detail—and sometimes we see that reality, but it is subsequently translated into technical language that is hard to relate back. It is particularly difficult for the people who are living those lives to relate to. What does a disregard mean? What does a component mean? When does an element apply? That can be difficult, and we have to remind ourselves that we are talking about the lives of vulnerable people, who are often trying to make a step forward and live a full life. The decisions that we make here can affect them greatly. Our focus this afternoon needs to be on moving away from that technical detail, which, if I am honest, I do not think that I have quite succeeded in doing.
The essential point of our amendment is to ensure that the disregard that is proposed in the DWP’s policy paper is an addition to other possible disregards, not a replacement. If it were to be a replacement, it could well mean a substantial reduction in the incomes of many disabled people. I refer to the evidence of two organisations that are well respected in this field. Family Action has said that if the disregards are
“not provided in this way”—
as an additive—
“households with disabled members could lose out significantly.”
For example, lone parents with a disability would see no benefit from a disability disregard, because it would be cancelled out by the equivalent of the lone parent disregard, whereas single people without children would keep it all. That would create significant inconsistencies in the system and significant difficulties for disabled people.
The Disability Benefits Consortium has reinforced that point by recognising that we have a complex system of disregards—I can understand the Government’s motivation for trying to address that and to introduce some simplification—but, as the consortium has said,
“In the present system this is not a problem as extra support for someone with a disability is mainly through the disability element of the working tax credit and so that then doesn’t get clawed back.”
The fact that we do not properly have the additions in the current system does not give us reason not to introduce it in this system because it is already addressed by the different elements that we have. It is important that the disregards that are introduced are additive and not replacements.
I should like to ask a number of questions briefly about the operation of the disregards and how they will be introduced. Again, they reflect concerns from the disability movement. If two members of one family are entitled to the disregard, for example, will they continue to be entitled to that disregard? If they are not entitled to it, as they currently are, that would mean a significant loss to a disabled family.
Will the Minister explain how the disregard will be brought into operation in practice? As I understand it, the briefing note indicated that it would build on the framework of the work capability assessment and that it would essentially supplement that. I am sure that he appreciates that some issues and questions surround that and how it will work. Many organisations have asked whether they will be consulted. Has the Minister already undertaken such consultation, or does he intend to do so?
Perhaps most significantly, there are proposals for a range of changes to disability benefits, most notably disability living allowance and the introduction of the personal independence payment. How will that affect people who currently receive such benefits, and how does that relate to the disability disregard?
It is important that we have this detail because it really matters to the quality of life of so many people. I am sure that none of us wants to introduce legislation that would reduce the incomes of disabled people, who are perhaps among the poorest in society because of their disability. We want to increase their opportunities, and it is vital that we obtain the necessary clarifications and assurances to ensure that disabled people properly get the welfare support that most of us want them to get.

Kate Green: I should like to comment a little further on the points raised by my right hon. Friend the Member for East Ham about the position of second earners and the proposal that there should be a disregard for the second earner in a couple, although it is a household benefit. I am concerned about the structure of a benefit that disincentivises the second earner in a couple.
Ministers have said on a number of occasions, not just in relation to the Bill, that they are concerned that we have what they say is the highest rate in Europe of children in workless households. The problem from a child poverty perspective, however, is the high proportion of children who are in poverty but in working households. About 60% of children in poverty are in households in which at least one adult is undertaking paid work. Although it is important to improve the working income of one adult in the household—perhaps by improving their earnings, by extending their hours, or both—it is also right that we seek to facilitate access to the labour market for all adults in the household if we are to ensure that children are protected properly from in-work poverty and that work is incentivised properly.

Charlie Elphicke: Will the hon. Lady give way?

Kate Green: I was about to address a point that the hon. Gentleman raised a moment ago. I will say what I have to say first and then I will be happy to take an intervention from him. He asked a very good question about what sort of disregard might be appropriate to incentivise second earners into the workplace and what it might cost. In that regard, I ask the Minister: what assessment has been made of that option? This is one of my difficulties: it is not clear whether Ministers agree in principle that we should do all that we can to facilitate employment for both members of a couple but feel that that is unaffordable. If so, what offsetting calculation has been made in terms of the long-term financial losses of not keeping one member of the couple attached to the labour market? Or do Ministers, as a matter of principle, not want to see second earners in couples in the labour market, because they would prefer the second member of the couple to be at home caring for children, perhaps because they believe that that is better for child well-being or that child care provision is simply insufficient to facilitate access to the workplace for lots of second earners. The reasons may be philosophical and practical, but what thought have Ministers given to the option?

Harriett Baldwin: Will the hon. Lady give way?

Kate Green: I said that I would take an intervention from the hon. Member for Dover. I will then come to the hon. Lady.

Charlie Elphicke: The hon. Lady makes a point with which many of us would sympathise were it not for the evidence of the Centre for Social Justice, which, as I recall, stated that this would cost about £750,000. I draw her attention to table A2 in the Red Book, which includes a calculation with or without universal credit, and my interpretation is that mini-jobs for both earners are incentivised. The issue is a mini-job, plus a 35-hour job, where the second, longer-working-hours person loses out.

Kate Green: There are two problems with mini-jobs and, indeed, with no job at all. First, those jobs are often the least likely to be stable and sustainable, and people will not have a genuine opportunity to progress and improve their incomes. As I have said in earlier debates, without a clear strategy to ensure that mini-jobs are a stepping stone to better prospects, I am concerned that designing a benefit around keeping people in minimal employment will, at best, move them only just around or above the poverty line. It will not significantly improve a family’s long-term financial prospects.
The second difficulty with mini-jobs and no employment relates to long-term economic well-being, including, unfortunately, people’s pension entitlements. People will not build up decent pension pots if they are not working or if they are working only limited hours for a long period. I am aware of the Government’s proposals to create a foundation pension, which I welcome and I look forward to seeing the detail. However, occupational pensions are an important way of lifting people into a decent pension income, and we will create substantial discrepancies if we do not allow and support people building up earnings early on and contributing to an occupational pension through the structure of our benefits system. I am concerned about both the short and long-term financial implications of the proposals.

Harriett Baldwin: Does the hon. Lady accept that the current system creates incentives for couples to live apart together? Does she think that that is an unintended consequence that the Bill would address?

Kate Green: I hear a lot about couples living apart together because of the financial incentives to do so, but of course there are other reasons why couples might now decide to live apart when there is a household benefit. However, that is largely anecdotal. I have seen no rigorously researched evidence that shows that couples base decisions about their living arrangements on the design of the social security system. I have heard plenty of anecdotal evidence, and the odd report from a personal adviser here or welfare adviser there, but I have not seen the evidence that shows that that is a significant problem for the social security system. People really do not choose to make that sort of decision in that way.
The other substantial point that I want to make about the position of second earners and the dangers of the Bill’s approach is that we know that a substantial number of relationships do not last. One in four children in this country can expect to spend some time in a lone parent household. That means that if we put couples in a position whereby one member is significantly disincentivised from remaining in and close to the labour market, the risk that that person may experience relationship breakdown and will therefore find it particularly difficult to provide support to their children through decent earnings is high.
It is important that we do not disconnect what will probably be predominantly women from the labour market when there is that risk of their having to support themselves, at certain times at least, without the support of a second earner. There is a very clear need to ensure that we keep all working age adults appropriately in touch with the labour market, because that is the best way to cushion them against the shocks and risks that may come along in future. It is important that we take protective and preventive measures against those shocks and risks.
I am interested in the philosophical argument that says that it is right for lone parents to be in the workplace. I support that broadly—I want to see lone parents helped into good quality employment that enables them to support their children, and combine that with their caring responsibilities. However, there seems to be a different view when it comes to couples. The hon. Member for Dover highlights a very interesting question; if the proposed model is that both members of the couple should do less work, I would like to hear the Minister explain the analysis behind that, because it is not the way in which most couples organise their economic and domestic lives. It may be difficult for couples to make that model work. We know that men in particular are already reluctant to ask and discouraged from asking for more flexible working arrangements, so there must be a reality check, if that is indeed the intention.

Charlie Elphicke: I am not sure that the idea is that there are two people on part-time work and that that is the incentive. The incentive is that people should work longer hours and eventually leave benefits altogether. We should not have benefits going all the way up the income scale, as happened in the past 10 years.

Kate Green: With respect, we are confusing two things. The benefits that stretched a long way up the income scale have been payments for children. I think that that is right, because it is about society sharing the cost of the long-term investment that we all make in children. The working tax credit, which has supported people on low-paid earnings, has not stretched up the income scale substantially; it has been a very specific subsidy for low-paid work. I expect that that is the model Ministers broadly want to replicate in universal credit. I agree with the hon. Gentleman that the long-term intention is for as many people as possible to earn at such a level that they have no need to rely on in-work financial support to subsidise low wages.
However, I hope that we recognise that there will be a continuing need to provide common support for some of the extra costs, including raising children or costs for those with disabilities and so on. The Government’s decision to leave child benefit out of universal credit is therefore welcome. In such circumstances, people have a right to look to the state to provide additional financial support.
I am concerned that the design structure of this benefit will damage women’s economic independence, and we should be worried about that in the context of the economic well-being of families and of women. I have two questions for the Minister, and I would be grateful for his answers.
First, I want to unpick some of the broad statements that have been made about the impact of universal credit on child poverty. Grand claims have been made about the number of children and working-age adults that the Government expect to be lifted above the poverty line as a result of the welfare reforms. What analysis has been conducted into levels of in-work child poverty in couple households as a result of the proposals? I would be grateful if the Minister shared that information with the Committee.
Secondly, I want to ask about the impact on women’s participation in the labour market and their economic independence. I appreciate that the Government have carried out equality impact assessments to support the welfare reform proposals before the Committee, but is there a financial disincentive that may discourage women from participation in the labour market? What mitigating steps do Ministers propose to take to support women’s connection to the labour market? In that context, will the Minister offer reassurances that the measure will not, probably by accident rather than design, set women’s economic independence on a backwards course? I would very much regret that.

Chris Grayling: I will answer the hon. Lady’s questions, but I think she is being a little old-fashioned. She appears to assume that the woman is the second earner in a household, but that is by no means a given in today’s world and it is increasingly not the case.

Kate Green: I am sure that the Minister is aware of the gender pay gap. I merely reflect reality, not ambition.

Chris Grayling: None the less, the hon. Lady has a pessimistic view of the balance of earning in the household, and certainly of how things will be in the future.
Let me respond in two halves. The hon. Member for Glasgow East commented on people with disabilities. As she knows, in the White Paper we set out our proposals for disregards to apply to earnings, which includes disregards for disabled people, couples and lone parents.
It is probably about time that the famous bookcase made its first post-Easter appearance. Clause 8(3)(a) contains the powers for those disregards to be put in place through regulations. We could put more detail in the Bill, but as I have explained to the Committee on several occasions, we believe that we should maintain flexibility for the current Administration and any future Administration, so that such matters can be changed in the light of economic circumstances or the unexpected. My hon. Friends have referred in the past to a situation where it was necessary to revisit primary legislation and make a change for people who are blind or visually impaired. That was due simply to an unintended consequence of the way that something had been written into the Bill. As I have said, it was the habit and intent of the previous Administration to leave flexibility in welfare reform measures where possible, and they did so on several occasions. There is no intention to leave out lone parents or disabled people from the provision of disregards. We simply seek to leave flexibility in the system to deliver what we believe to be the right approach.

Margaret Curran: In the light of that, would the Minister be prepared to consider the affirmative procedure, as has been requested by several organisations, to ensure that we get the provisions right?

Chris Grayling: I am happy to address that point. I know that the right hon. Member for East Ham has tabled some amendments on it. I have given careful thought to the representations about the affirmative resolution procedure. I know that on several occasions, the introduction of a measure has been handled under an affirmative resolution and I am minded to pursue that same approach, but we will return to that later. I hope that provides the reassurance that the hon. Lady requires.
I still have the other half of my response to make, but given that there are other matters happening elsewhere in the House, I propose that we defer consideration of the amendment until Thursday, when I will be happy to pick up and answer the points that the shadow Minister and the hon. Lady made.

Ordered, That the debate be now adjourned— (Miss Chloe Smith.)

Adjourned till Thursday 28 April at Nine o’clock.